What Is Margin and Should You Invest on It?

What Is Margin & Should You Invest on It?

By Jeremy Bowman – Updated Mar 19, 2025 at 2:42 PM

Key Points

Margin trading involves using borrowed funds from a broker to buy stocks, potentially increasing gains and losses.
Interest on margin loans can be high, reducing net profit and increasing investment risk compared to traditional investing.
Margin calls require additional funds during market dips, potentially forcing sales of stocks at losses.

Almost every investor is tempted by the idea of accelerating their returns.

On average, the S&P 500 returns about 9% every year with the dividends reinvested. That's enough to build substantial wealth over a long period of time, and it's a relatively low-risk way of doing it. However, for investors willing to take on more risk, there are ways to increase your potential returns by adding leverage. One of the most popular ways of doing this is trading on margin.

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A diagram showing what margin is and how it works. — Image source: The Motley Fool

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Margin Call

A margin call is when you’re required to deposit more funds to keep the amount of your investments above the margin.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.